Gamblers looking to front-run a manufacturing turnaround might be tempted to bet on the auto-supply sector. But with carmakers keeping an eye on every penny, a recovery might come late to this sector.

Sales and profits for auto suppliers, which make everything from bolts to chassis, have fallen due to sputtering U.S. vehicle production. While Tuesday's purchasing managers' index showed an uptick in new orders and factory production and gave the strained U.S. manufacturing sector

new hope, analysts say the auto parts sector will probably lag, not lead, the recovery.

"I'm not one to make that call for the sector," said analyst Gregory Kagay at ABN Amro, who covers 12 auto suppliers plus behemoths

Ford

(F) - Get Report

and

General Motors

(GM) - Get Report

. "Orders are directly related to production volumes, and I think volume demand

in 2002 is going to slow relative to this year." Kagay expects third-quarter production volumes to drop by 6% from the same period last year, and fourth-quarter levels to fall a subsequent 4%. And he thinks conditions won't really improve in the next 12 to 18 months.

Spanner in the Works

Investors have been catching on. The Dow Jones Manufacturers & Parts Makers Index has lost about 17% since its mid-July high. Shares of auto suppliers, including

Visteon

( DPH),

Delphi

( DPH) and

Lear

(LEA) - Get Report

, suffered significant losses on Aug. 17 when Ford

slashed its fourth-quarter earnings outlook. Kagay said a big concern is that automakers will try to get the auto suppliers to cut their prices.

Meanwhile, Ford has lost 20% since the start of August, and GM has slipped 13.2%.

DaimlerChrysler

( DCX) is off by 13%.

"There are some reasons to be mildly optimistic about manufacturing, mainly because some of the most severe inventory adjustment process seems to be behind us," said Josh Feinman, chief economist at Deutsche Asset Management Americas. But Feinman also said auto sales data from the last two months have been "disappointing, and tempers the optimism a little."

Sales for American automakers have been pressured this year by overseas competition and falling demand. But the "favorable pricing environment" has helped to offset the effects of rising consumer debt levels, said Jon Rogers at First Union Securities. Indeed, the retail sales report for July showed that sales for motor vehicle and parts dealers were up 2.9% from last year.

On Tuesday, Ford said U.S. sales dropped 7.5% in August, while GM said sales fell 7%. Both beat analysts' bleak forecasts, which called for 10% to 20% declines. But DaimlerChrysler saw its sales fall 24% from record levels last year, a steeper fall than analysts expected.

Foreign automakers once again posted stronger results and claimed market share from the U.S. companies. Japanese firm

Toyota Motor's

(TM) - Get Report

U.S. sales grew 7.2% to 158,918 units, a mere 6,000 units short of Chrysler group, the No. 3 seller of cars and trucks. The Big Three American automakers have never been surpassed by an import automaker in overall sales.

Japan Inkling

According to Kagay, Asian manufacturers, whose U.S. market share is closing in on 30%, are gobbling business at an unprecedented pace. The reasons are the same as they've always been: good cars that last and don't cost as much.

"Asian and European manufacturers are definitely gaining market share," said Rogers, "but it's due more to their products, especially the car side of business, rather than compelling foreign exchange rates." Rogers added he expects sales among U.S. automakers to decline next year, too.

With the auto supply business so closely pegged to vehicle production, the analyst isn't recommending auto supplier stocks. "The best time to buy auto supplier stocks is right at the sales trough when

auto sales begin to rise. But we're not there yet," Rogers said, who said he's been "conservative" on the group.

The investing strategy for this environment is to "be selective" and "own stocks that can grow revenues and gain market share without a corresponding increase in production," said Rogers, who has buy ratings on

American Axle & Manufacturing

(AXL) - Get Report

, Delphi and Lear.

His firm recently participated in American Axle's share offering.